Magma Design Automation Inc. F4Q08 (Qtr End 04/06/08) Earnings Call Transcript

Magma Design Automation Inc. (LAVA)

F4Q08 (Qtr End 04/06/08) Earnings Call

May 1, 2008 5:00 pm ET

Executives

Milan Lazich - VP of Corporate Marketing

Rajeev Madhavan - Chairman, CEO

Roy Jewell - President, COO

Pete Teshima - CFO

Analysts

Raj Seth - Cowen and Company

Rich Valera - Needham & Company

Sterling Auty - JP Morgan

Presentation

Operator

Welcome to the Magma Fourth Quarter Fiscal 2008 Earnings Call. (Operator Instructions) Now I'd like to turn the conference over to Magma's Vice President of Corporate Marketing, Milan Lazich. Please go ahead.

Milan Lazich - Vice President of Corporate Marketing

Thank you. Welcome to Magma's Fourth Quarter Fiscal 2008 Earnings Call, hosted by Chairman and CEO, Rajeev Madhavan; President and Chief Operating Officer, Roy Jewell; and CFO, Pete Teshima.

Our Q4 earnings release is on Magma's website and includes a reconciliation of non-GAAP results to GAAP results. The Financial Data Supplement in our website's Investor Relations section includes updated financial guidance.

During our call, including the question-and-answer period, we make forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, including statements about our expected financial results, current and future products and plans, market share and competition, customer spending trends, market trends and sources of future revenue. These forward-looking statements represent our current judgment of business and operating conditions but are subject to risks and uncertainties that could cause actual results to differ materially from current expectations.

In addition to any risks we highlight during this call, other potential risk factors are discussed in today's earnings press release and in our Form 10-Q for the period ending January 6, 2008. Magma undertakes no additional obligation to update these forward-looking statements.

With that, let me turn the call over to Rajeev Madhavan.

Rajeev Madhavan - Chairman, Chief Executive Officer

Thank you, Milan. Good afternoon.

We finished fiscal 2008 with record revenue of $214.4 million, breaking the $200 million threshold for the first time in Magma's history. Fourth quarter revenue of $55 million was slightly below target, as some orders were pushed out, but by and large, we again put up solid numbers. EPS and operating margin were both within our guidance ranges.

Despite near-term uncertainties in the semiconductor world, we remain optimistic about our long-term growth prospects. With our latest technology additions, Magma is now in the position to address the widest range of chip designs. We remain focused on delivering products that enhance our customers' productivity and help them finish their designs faster. Let me give you a quick update on some of the recent progresses.

We made some major product announcements during the quarter. The release of the Titan custom-designed platform was an exciting addition to our product portfolio. Simply put, Titan accelerates mixed-signal design. Amazingly enough, analog tools do support only minimal automation, and our analog designs are still largely hand-crafted.

This is time-consuming and error-prone. Titan provides the most automated mixed-signal design flow in the industry today. Titan is already in use at a number of customers and applications that includes chips for wireless, PC peripherals, memory, consumer applications, such as high-definition television, and more.

One of the early Titan users, Elcos, described their experience transitioning to Titan in a submission on the DeepChip website just this morning. Titan was described as very productive for mixed-signal design. You can read the full submission from the DeepChip homepage at www.deepchip.com.

Our other major announcement was the acquisition of Sabio Labs, which provided the technology behind our Titan Analog Migration products, or Titan AM. This makes it possible for the Titan platform to translate the designer's expertise in the reusable designs that perform correctly over multiple corners and multiple processes.

Titan AM enables a customer to create high performance, reusable, robust designs that can be migrated to different processes quickly. Matsushita, an early user of this technology, migrated their analog IT to 45 nanometer and cut the power consumption of their designs by 50% without sacrificing performance.

We also announced an accurate extraction product, QuickCap TLx, which extends the accuracy of our extraction franchise-leading product, QuickCap. We expect the need for extraction accuracy to extend all the way to full mixed-signed SOC's.

QuickCap TLx makes it possible for analog designers to achieve the narrowest possible error. Designers can remove excess margin and fully realize the benefits of their manufacturing technology to increase performance and profitability.

With all that we have announced in our newer segments, we have not forgotten about digital implementation. New features in Talus have significantly increased throughput capacity, particularly at 45 nanometer. In the fourth quarter, a number of customers completed the migration from Blast Fusion to Talus platform and of our top 13 accounts; all 13 have Talus flows in place or will have by the end of July.

Now let me turn the call over to Roy.

Roy Jewell - President, Chief Operating Officer

Thanks, Rajeev. Our focus has always been and remains on enabling our customers to complete leading-edge chips, and our continued demonstrated success shows we are on the right path. Let me give you a few examples.

In digital implementation, Hynix used Magma to tape out a 16-gigabyte flash memory design. Hynix overcame timing closure issues on sensitive control logic and reduced turnaround time by 30%. Switching to Magma's automated flow dramatically reduced turnaround time. This success followed their adoption of FineSim, providing us with a template for penetration of the memory market with our implementation tools.

In low power, a major fables customer completed its tenth tapeout with Magma at nodes ranging from 65 to 45 nanometers, all in the first year of deploying our implementation product. In wireless, one of the world's largest suppliers of application processors used Magma to tape out recent additions to its GPS mobile chip, and a major supplier of wireless chips used Magma implementation products to complete a 3G chipset that is expected to be used in one of the world's most popular new smartphones. These are just the most recent design completions that confirm Magma's leadership in low-power wireless applications.

In circuit simulation, FineSim SPICE's acceptance keeps growing. Magma is part of TSMC's Interoperable SPICE design kit program announced last week. This program creates and qualifies interoperability between flight simulation and TSMC's most advanced processes, ensuring design accuracy for first-time silicon success.

I'd like to make one operational note. As we announced Wednesday, Bruce Eastman has joined Magma as Corporate Vice President Worldwide Sales. Bruce has headed sales at several EDA companies, and a number of us at Magma have worked with him in the past. I'm very happy to have Bruce on board.

Pete will go over the financials and guidance in a minute, but I'd like to preface his discussion with a couple of comments. First, on the environment. Some competitors have expressed concern over the economic conditions our customers face, but many of our customers are actually doing well, some very well. But while these companies are not seeing broadbased weakness in their businesses, some are experiencing near-term softness and lack of visibility.

They are, therefore, exercising heightened caution in making purchase decisions and paying attention to near-term financial metrics. Specifically, our revenue's shortfall this quarter was due to stringent expense controls at a particular customer that resulted in a decision on the last day of the quarter to delay an expected order. This order was not cancelled and is in process as we speak.

Second, on our backlog. When Pete discusses our end-of-year number, you'll note that it actually declined form last year. In the interest of visibility, let me describe what contributed to this. The transition to Talus consumed field resources and delayed expansion opportunities at some accounts, as many customers wanted to prove out the new platform and capabilities before broadbased adoption.

Other contributing factors were the lack of native compatibility of Quartz DRC/LVS with Mentor's Calibre and development efforts needed to mature our new products, such as FineSim Pro as they were being deployed. We believe we are past these issues or will be shortly.

Despite these issues, we had several major deals in process which, had they closed as expected, would have enabled us to finish with a strong bookings for the year. They did not close by the end of Q4, but we expect they will soon.

So while we see no pullback in the level of design activity, we believe it prudent to take a more conservative assessment of fiscal '09. This is driven by our desire to maintain a backlog-driven revenue model and the flexibility to close deals which represent good business. And our profitability guidance is in a range that enables us to invest in development and deployment of new products.

Even though we are scaling back our revenue guidance to a level below the preliminary range we gave on our last call, we are still guiding towards growth as comparable to, or better than, our competitors. We believe we are strongly-positioned competitively and that our financial model is a sensible one, given what we know.

Now here's Pete.

Pete Teshima - Chief Financial Officer

Thank you, Roy, and good afternoon, everyone.

After we cover quarter four results, I'll review our updated guidance, which is in the Financial Data Supplement on our website. Unless specifically noted, all references to expenses, margins and other financials are on a non-GAAP basis.

Revenue for quarter four was $55 million, slightly below our guidance range of $56 to $58 million. This was up 9.7% from the year-ago quarter and down from quarter three’s revenue of $55.7 million. In quarter four, 82% of revenue came from backlog-related transactions, and 18% came from upfront orders completed in the quarter. This was the same mix we had in quarter three.

For fiscal 2008, revenue was $214.4 million, 20.4% higher than the prior year and a record for the company. Backlog at the end of the year, which will be reported in our Form 10-K in mid-June, was greater than $390 million. This represented a decline from the backlog at the end of fiscal 2007, which we reported at greater than $420 million.

Quarter four spending for R&D, sales and marketing and G&A totaled $39 million, or 71% of revenue. Operating income for quarter 4 was $9.4 million, or 17% of revenue, within our guidance range of 16 to 18%, and compared to $9.5 million, or 17% of revenue, in quarter three.

For fiscal 2008, operating margin was 15%, compared to 6% for fiscal 2007. Tax expense for quarter four was $1.3 million, or 14% of pre-tax income. This compared to $2.5 million, or 25% of pre-tax income in quarter three.

Quarter four's diluted non-GAAP EPS was $0.17 per share, at the high end of our guidance range of $0.15 to $0.17 per share, and an increase over quarter three's $0.16 per share. Note that $0.02 of the non-GAAP EPS was the result of a favorable tax rate adjustment, but even without those $0.02, we would have finished within our guidance range.

On a GAAP basis, EPS was a loss of $0.17 per share, which was better than our guidance of a loss in the range of $0.25 to $0.23. Non-GAAP to GAAP adjustments account for approximately $0.34 per share on a diluted basis. For fiscal 2008, our non-GAAP EPS was $0.58, a significant improvement over fiscal 2007's $0.22 result.

We ended quarter four with total cash and investments, including restricted cash, of $67.5 million, a decrease from $69.7 million at the end of quarter three. We generated $2.6 million in cash during the quarter on an operating basis, but the cash position declined as a result of stock repurchases during the quarter.

Accounts receivable was $38.3 million for quarter four, compared to $28.1 million for quarter three. DSO for quarter four was 63 days, compared to 45 days in quarter three. We do not factor our receivables. Head count at the end of quarter four was 1,030, up from 974 at the end of quarter three.

Let me now offer our guidance for the upcoming year and for quarter one. For fiscal 2009, which will end May 3, 2009, our guidance is as follows. Revenue for fiscal 2009 is expected to be in the range of $225 million to $230 million, representing growth in the range of 5% to 7.5% over fiscal 2008. Non-GAAP operating margin for fiscal 2009 is expected to be in the range of 14% to 16%. Tax rate is expected to be 22% to 23% of non-GAAP pre-tax income. Non-GAAP EPS for fiscal 2009 is expected to be in the range of $0.50 to $0.55 per share.

For the first quarter, which will conclude August 3, guidance is as follows. Revenue is quarter one is expected to be in the range of $50 million to $51.5 million. Non-GAAP operating margin is expected to be in the range of 9% to 10% for quarter one. Tax rate is expected to be 22% to 23% of non-GAAP pre-tax income. Non-GAAP EPS is expected to be in the range of $0.07 to $0.09 per share. Diluted shares outstanding are forecast to be in the range of 48 million to 49 million shares for quarter one.

First quarter and fiscal 2009 full-year guidance are available in the Financial Data Supplement on our website. As a reminder, the shift in fiscal year we announced on our previous earnings call created a four-week transition period between fiscal 2008 and fiscal 2009. Results from this transition period, which ends this Sunday, May 4, will be reported separately in our first quarter 10-Q and fiscal 2009 10-K, but not included in any fiscal 2009 results.

Now we'll take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we'll take our first quarter from Raj Seth with Cowen and Company.

Raj Seth - Cowen and Company

Hi. Thank you. Roy, I just want to understand the guidance here and what happened to backlog. A quarter or so ago, when Cadence said that they saw everything slowing down and potentially some stuff pushing out, you guys just said you weren't seeing that. You've guided down pretty substantially. And I think we were conditioned to expect backlog to grow roughly in line with revenues. We're obviously much lower than that. Is the implication of that that some very big deals in Q4 slipped and that your guidance in '09 does not assume that they come back, or what exactly happened on the bookings front here in the fourth quarter?

Roy Jewell - President, Chief Operating Officer

As you deduced, there were a number of deals that we had in process that, frankly, I expected to have close in the fourth quarter. And the environment that we see out there, I tried to cover it a little bit in my presentation. We don't see our customers having significant fiscal problems, but we do see a lot of caution in how they're setting themselves up to go forward. So I can give you a couple of deals that got pushed out.

I know one deal from a major company that I thought was going to come in at about twice as large as it did. They were much more pragmatic in how they placed the order. And we just had to deal with that in the quarter. And it actually ended up getting backed up at the very end of the quarter.

So I'll say that I don't think that it's doom and gloom like some of my competitors have said in terms of the environment with semiconductor manufacturers, but I do see them being extremely, let's say, diligent and creating a lot of visibility when they're placing orders. There's a lot of people that are trying to slow down right now until they know exactly where they businesses are going.

Raj Seth - Cowen and Company

Is it fair, what I mentioned before, the assumption that backlog should normally grow about the same as revenues, that would have put backlog around $500 million if, in fact, that was a fair assumption. Was that a fair assumption and are we actually saying that $100 million in bookings somehow slipped out of Q4? Or is there something wrong there?

Pete Teshima - Chief Financial Officer

Raj, its Pete here. What we were expecting or what we would think would be reasonable, is a growth of about half of that, so about 10%. That's what we were driving to.

Raj Seth - Cowen and Company

Okay. So, half of that is $460 million. So $70 million in bookings pushed out. How much of that would you think or expect closes in the next couple quarters? How many deals is that? Is that just a handful of deals? It sounds like a pretty big number.

Pete Teshima - Chief Financial Officer

Again, like Roy had indicated earlier, we expected to be successful in what we would call interim large deals. And for us, a category of a large deal is anything greater than $10 million. If we would have hit those deals, we would have grown something similar to what we did last year, which was about 13 to 14%. We believe it's still there; we just need more time to complete them. These are large deals and they just take extra time to close.

Roy Jewell - President, Chief Operating Officer

Raj, let me also clarify. I made a comment also relative on the bookings side that I think it took a lot more resources than we expected to, to roll out a new platform, Talus, and replace our current Blast Fusion customers. And a number of those customers, we were expecting in Q3 and Q4 to basically close expansion deals with the Talus product.

They have been much more rigorous in wanting to test out the product before they deploy it worldwide, and Rajeev commented that by, I think, the end of July, 13 of our top customers will now have production flows, and we hope those customers, by the end of this calendar year, basically have wrapped up their legacy designs in Blast Fusion. But that did slow down some bookings that I, frankly, did not anticipate at the beginning of the year.

Raj Seth - Cowen and Company

And so, looking at this from the outside, I've gotten very good feedback from many of your customers myself. But what can you give us to make us feel better about the fact that to convince us that your competitiveness here hasn't changed and that it's simply a dynamic of a more cautious environment, because, obviously, a lot has slipped. Do you see any shift in share relative to your previous expectations? Or is this something that everyone sees across the board?

Roy Jewell - President, Chief Operating Officer

My belief is probably everybody's seeing that across the board, because I can't name accounts that I've lost to my competitors or even lost share in those accounts of any appreciable amount.

Rajeev Madhavan - Chairman, Chief Executive Officer

I think, Raj, as Roy pointed out, it's taken us more time in the deployment of some of these, specifically Talus there, and that is what has drawn more pace. But it doesn't change any of the commodity of these pictures. It's more because people didn't want to move quickly out of the Blast Fusion project that made us have two releases out there and then hold the two releases.

And as Roy was just mentioning, we expect all the customers by the end of July, the top 13 will have Talus, six of them tapeouts with it, ten have production use right now; the remaining three by the end of July. And we will have still some designs which are going on in Blast Fusion 'til the end of the year. And that transition is what Roy was mentioning about.

Raj Seth - Cowen and Company

Well, last one, as long as, Rajeev, I've got you. And forgive me, I didn't see all your prepared remarks yet, but on the analog side, what sort of expectation do you have, maybe you mentioned this already, in which case I can go to the transcript but what sort of expectation should we have about analog penetration this year, analog contribution to booking? And I know you've given a revenue growth expectation. What's the bookings growth expectation above that for fiscal '09, overall?

Rajeev Madhavan - Chairman, Chief Executive Officer

Let me have Pete talk about the bookings expectation and then I'll talk about the product for you.

Raj Seth - Cowen and Company

Sure.

Pete Teshima - Chief Financial Officer

Raj, from a business perspective, and when I say business, right, in '09, we would expect the analog piece, and this is the Titan piece, to be between 5% to 10% of the bookings. It would be more back-end loaded.

Rajeev Madhavan - Chairman, Chief Executive Officer

So that basically we expect most of those to be in the Q3, Q4 timeframe. Titan is, right now we're engaged at 10 customers. We launched it at the end of February. We have 10 customers. We have had our first paying customers last quarter. There's an article in DeepChip about the usage by one of the first customers. There are nine others who have the software deployed and being tested as we speak right now.

Raj Seth - Cowen and Company

And bookings expectations in aggregate for the year?

Rajeev Madhavan - Chairman, Chief Executive Officer

That's was Pete was saying, it was 5 to 10%, but it'll be.

Raj Seth - Cowen and Company

No. I didn't mean just on the analog. I meant growth. Is that consistent with revenue growth? Is it higher relative to '08?

Pete Teshima - Chief Financial Officer

Well, it would be, actually, a little more muted than if you're talking about the analog simulation growth.

Raj Seth - Cowen and Company

No, I'm not talking about analog. I'm talking about overall.

Rajeev Madhavan - Chairman, Chief Executive Officer

He's asking about the total bookings growth.

Pete Teshima - Chief Financial Officer

It would be consistent with the total bookings growth, going forward.

Raj Seth - Cowen and Company

No, I'm just asking what the total bookings growth is.

Pete Teshima - Chief Financial Officer

Year-on-year?

Raj Seth - Cowen and Company

Yes.

Pete Teshima - Chief Financial Officer

From '08 to '09?

Raj Seth - Cowen and Company

Yes.

Pete Teshima - Chief Financial Officer

We're expecting between 25% and 40%.

Raj Seth - Cowen and Company

25% and 40% bookings growth.

Pete Teshima - Chief Financial Officer

Over our fiscal 2008. Correct.

Raj Seth - Cowen and Company

Okay. Thank you. I may come back for a follow-up. Thanks.

Operator

(Operator Instructions.) We'll go next to Rich Valera with Needham & Company.

Rich Valera - Needham & Company

Just a follow-up on the bookings and backlog questions. I'm curious why you would have been targeting only roughly 10% backlog growth when you had guided for 12% to 15% revenue growth. I assumed, sort of to maintain the same level of ratable revenue in your model that essentially backlog growth would have to kind of mirror revenue growth. Is there any reason why you would have assumed you could grow 12% to 15% while maintaining the same level of ratable revenue with a lower level of backlog growth?

Pete Teshima - Chief Financial Officer

What it is, is the backlog consists of a number of components. One, which is ratable, which makes up about a third of it. But then we also have the cash receipts and then the due and payable piece. So when you take those into consideration, it's what allows us to have that kind of flexibility in terms of backlog growth.

Rich Valera - Needham & Company

Okay. And then in the prepared remarks, in terms of things that sort of went wrong, you cited issues around Quartz, and it sounds to me like, interpreting them, it's related to sort of translating Calibre rule decks, and correct if I'm wrong, and a quarter ago, you kind of made it sound like you had a breakthrough here with a Calibre rule deck translator which was going to greatly facilitate attacking Calibre accounts and penetrating Calibre accounts, and now, a quarter later, after this seeming breakthrough, we're saying that we've got issues. And, of course, Quartz has been out now for.

Rajeev Madhavan - Chairman, Chief Executive Officer

Rich, let me answer that.

Rich Valera - Needham & Company

Well over a year.

Rajeev Madhavan - Chairman, Chief Executive Officer

Rich, let me answer that.

Rich Valera - Needham & Company

Sure.

Rajeev Madhavan - Chairman, Chief Executive Officer

In the DeepVhip article from today morning, there's an article where they basically said within four days, the user could convert the Calibre and move over to Magma. This is a Titan/Quartz DRC. The last paragraph on it, it simplifies and states what it is, which is it takes us four days to convert.

But during this one whole quarter, we had launched it and we had to deal with all the issues and bugs of that software. Towards the tail end of it, which is when we did close one of these customers, we had it buttoned down for four days of conversion time from a Calibre deck. And so we are there and we are past the issue, but we had launched it and we had bugs and things, but we are now down to four days use. We had a large number of engagements and some of the major deals that Roy was pointing out to do not close, but they were engaging with Quartz DRC/LVS as well.

Rich Valera - Needham & Company

Okay. And similarly, on FineSim Pro, you mentioned some issues relative to maturity. I'm not sure what that means with that product. And, again, that product seemed like it was selling extremely well, and just curious, what were the issues that cropped up that suddenly created a problem for you with FineSim Pro?

Rajeev Madhavan - Chairman, Chief Executive Officer

So there are basically, FineSim SPICE is at a stage where we can just drop it down on a customer and any HSPICE design or any HSIM design is easily convertible and can be run. FineSim SPICE Pro, we had settings that needed to be set by the AE's, etc., which were taking time. We have resolved most of them. There's a punch list. And that's why Roy said we'll be done with all those issues by the middle of this quarter.

But it's basically, the time of engagement, as we have been pointing out to you, our FineSim SPICE and FineSim SPICE Pro, we expected to be finishing up engagements in two to three weeks of engaging and not lengthening the benchmark. And FineSim SPICE certainly achieves that. The SPICE Pro takes longer than that until we finish up this punch list.

Rich Valera - Needham & Company

Great. And just one final one, if I could, on Talus. You mentioned, I think, several times about sort of converting customers to Talus and doing sort of corporate-wide deals on Talus. Are there any issues with customers perceiving the additional value of Talus over the old Blast Fusion products, or is this just purely a matter of timing?

Rajeev Madhavan - Chairman, Chief Executive Officer

Purely a matter of timing and stability of Talus and the maturity of the Talus aspect of things rather than, the delay that Roy was pointing out was the maturity aspects of the new software over any other issues. We can easily beat the Blast Fusion results today. That's not the problem. The problem is the maturity when you're deploying it and the level in which these customers have deployed Fusion. And stability and maturity was the issue.

Roy Jewell - President, Chief Operating Officer

Rich, I would say, I would take it personally that maybe we were a little naïve in terms of thinking how quickly people would adopt a next-generation implementation tool, but people were much more rigorous in evaluating it and getting a level of confidence before they rolled it out in the field. And I think looking back in hindsight you would say probably it was a reasonable assumption.

We should have understood because their businesses depend on whether they get those chips out. And this tool is instrumental in whether that happens or not. But we have been working very diligently over the last 12 months to get these major customers moved over to Talus, and I'm happy to say out of the top 13, 10 have already got production flows, and I hope by the end of this calendar year we've moved away from legacy designs and going to Blast Fusion because we think there's measurable improvements in performance that come out of the new product.

Rajeev Madhavan - Chairman, Chief Executive Officer

So just reiterating, performance, very big step up in Talus, but the maturity was the issue. Period.

Rich Valera - Needham & Company

Gotcha. Okay. Thank you.

Operator

And we'll go next to Sterling Auty with JP Morgan.

Sterling Auty - JP Morgan

Yes. Thanks. A couple questions. So when you finished the third fiscal quarter, did you still expect at that point that the backlog could still grow 10% year-on-year? In other words, was all of the issue here isolated to the fourth quarter? Or did some of it actually start to crop up in the third quarter?

Pete Teshima - Chief Financial Officer

I'd say that the bulk of the issue was we saw this quarter.

Sterling Auty - JP Morgan

Okay. And is there at least a generalization that you can give us in terms of how much of the issue around the business, whether you call it slipped or pushed out, how much of that was the Quartz DRC, the Talus issue versus kind of the scrutiny issue or the macro-environment with the customers? Was it 50/50, or can you give us just some generalization as to what was the bigger impact?

Roy Jewell - President, Chief Operating Officer

I would say, Sterling, that at least half of it was the scrutiny of the customers and then you come back, we had some, and we still do some significant Quartz FineSim deals that are in progress right now, but I would say it's about half and half. And I think in a normal environment where the semiconductor industry had clear visibility on where they were going, a number of these deals would've gotten placed automatically.

Sterling Auty - JP Morgan

Okay. And then, I think, Pete, so the bookings growth of 25 to 40%, I think that caught me a little bit by surprise. Is what your looking at is adding what you thought slipped to a more moderated growth that you would have thought for fiscal '09 and the combination, that's how you get the 25 to 40?

Pete Teshima - Chief Financial Officer

I would characterize it. I think that's a safe way to characterize it, Sterling.

Sterling Auty - JP Morgan

Okay. And the last question is with the changeover in sales, what, can you give us some, talk us through what was the timing of the departure and was there any actual sales disruptions that had any impact there?

Roy Jewell - President, Chief Operating Officer

The person that was in the position before left at the beginning of the quarter, and Bruce joined us, in fact, this week. I think anybody that's been involved with the company very much knows that I've been intimately involved in the sales process since I joined Rajeev in 2001. I don't think transition of individuals was an impact here. I won't fall back on that sword. I think it was mainly an execution issue on our part and a market environment issue on the more macro-environment.

Sterling Auty - JP Morgan

Okay. And then just last question, Pete. On top of all this, can you give us, was there any FX impacts in the quarter, on the revenue and expense?

Pete Teshima - Chief Financial Officer

There was some. We have a hedging program, but it's focused primarily on the yen. We haven't yet instituted one on the euro, and we did get impacted by that to an extent.

Sterling Auty - JP Morgan

Alright. Thank you.

Operator

Thank you, everyone. That does conclude today's question-and-answer session. I'd like to turn the conference back to Rajeev Madhavan for any closing remarks.

Rajeev Madhavan - Chairman, Chief Executive Officer

Thank you for joining us today. We'll be at the Cowen Technology Media Telecom Conference May 28 in New York. We hope to see you at this or at another upcoming conference, and we'll speak with you again on our next quarterly call. Good afternoon.

Operator

Thank you, everyone. That does conclude today's conference. You may now disconnect.

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